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You should not survive long without a strong revenue model…yet you can be wildly successful with a large base of free users

A great article from David Spinks of Feast making a case for having a solid business and revenue model over and above a user base of free users.


It all makes very much business sense. And yet as I read it I can feel the brakes come on. Yes, it is important to test your revenue model (let alone have one to test!), but I can’t help to feel positive about the prospect of building up a large user base (for free). Why is that? In part we’re conditioned to associate “large user base of free users” with success given the highly mediated examples of acquisitions and huge valuations of free user bases. Entrepreneurs (and clearly many in the startup funding community) are willing to take a leap of faith that if you have a sufficiently large user base, you will be able to convert enough of them to paying customers – somehow. So the thinking is that it is harder nowadays to amass a huge following of faithful customers than it is to come up with a business model that can generate revenue. It’s a classic case of perception vs reality. You are perceived to be successful because you are grabbing lots of users (and there is no question that it is an accomplishment to do so given the zillions of free apps and sites that get no traction). Reality is you may be far away from converting them to paying customers. But as always perception trumps reality, and our current business and cultural mindset supports that perception.

We also need to caveat that in most entrepreneur circles, acquisition or IPO is the end game. You won’t raise much money if you don’t make that your priority. That can open up an escape pod for the entrepreneur (and VC) of amassing a sufficient user base to be of interest to somebody else that will take on the responsibility of monetizing your customer base (or will buy you out to stop hemorrhaging paying customers to your free solution).

Why care about customer validation, did Apple not launch the iPhone with no validation?

I’ve heard this a few times, and just recently at an incubator Lean Startup meeting. Entrepreneurs can be miffed by the Lean Startup requirements to spend so much time looking for customer validation. After all, Steve Jobs (as well as Akio Morita, Mr Sony) are known for rejecting customer research, stating that customers do not know what they want until you build it for them.


It is a myth to believe that Steve Jobs built the iPhone in isolation of customer validation. Steve Jobs was very much aware of the needs and problems of mobile phone users. And he built the iPhone to respond to those needs. I was at MacWorld’s iPhone announcement and saw first hnd how Steve was in tune with that users wanted – from a phone, an iPod and a mobile internet device (the three pillars of the iPhone as he described it). He clearly spoke of the complexity of the UI of mobile phones, boasting a bunch of features like address books and cameras that no one knew how to turn on or use. He knew the need that people had to be able to do simple internet queries while away from their desk, to find the address of a restaurant, get a map of their location, or some quick fact-checking.

The foundation of the iPhone had strong customer validation. The reliance on touch however (and the lack of a physical keyboard) was a bet however, one that could not easily have gotten customer validation (besides internal beta users). Several tech CEOs saw that as a wild failing bet (Mr Ballmer’s for example), because they thought that they had sufficient customer validation that a physical keyboard was a requirement. Apple’s genius was in changing the conversation from “physical vs touch keyboard” (which they would likely have lost) and to “complete touch interface with intuitive powerful new gesture-based interactions (pinching, zooming, swiping, etc)” that was so compelling overall that people were willing to trade off the accuracy of the physical keyboard for the power and versatility of the all-touch interface.


Customer validation and engineering creativity both have their place in great product development – external customer validation is needed to understand the problem area and need, from a customer perspective; internal engineering creativity is needed to deliver a unique innovative implementation of a solution to those needs.

Five steps to define a target market with high potential

Is a market big enough to justify the time, money and effort to go after it?

It’s a question that many business-minded folks are faced with when exposed to ideas coming from creative minds (technical or otherwise). A typical conversation here would be of the type “we have this new iPhone accounting app for dentists…how big do you think the market could be?”

There are two problems with this question. First, who might know? Certainly not the people that sit in the room or the building with you. They are not the target customers and they do not have a crystal ball. The answer lies outside the building, with your target customers. Only they can tell you if they are interested in what you suggest. Which brings us to the second issue: it’s a product-centric question, and one that you can’t even begin to answer without a lot more information. At what price? Distributed how? Supported by whom? With what level of quality or performance? What is the competition? Etc.

So you go and try to find how many medical accounting apps exist in the app store and what their volume is, what your share might be, using your guess of the total number of dentists with a smartphone as your ceiling potential. This is a “glass half-empty”, (or red ocean) approach, with an underlying assumption that the market is going to be too small, until and unless you can demonstrate otherwise. You accept barriers to adoption that thin out possible customers, and you try to build your way up by tweaking (ie. hoping) that you can convince more people to go through your barriers. What you are left with all too often is a narrow group, a market dead-end.

A better way is to take a “glass half-full” (top-down) approach, ask customer-centric questions, and assume that your market is undeniably large to start with (a blue ocean perspective). Then slice your market in subsegments by introducing a targeted (niche) benefit so valuable that it will more than compensate for the smaller market size. Question the need for (and brainstorm ways around) any factor that cuts your market size without adding a strong benefit. What you will be left with is a niche market with high potential for a product that has high potential value to the audience.

Here is a 5-steps approach to scoping a sizable target market:

  1. Start from the largest known uber-market you aim to serve. It could as large as “Consumers” or “Health care professionals” or “K-12 schools”.
  2. Add a strong benefit that will resonate with a portion of your audience, and will increase the success of your offer enough to compensate for the lower market size
  3. Categorize the non-selected portion of your market as either “parallel target” or “non-target”. Would a secondary subsegment be interested in your offer with a minimal change to the product (or distribution or marketing or business model, etc)?
  4. Challenge a limiting market constraint that is not linked to a strong customer benefit. Look for ways to avoid the constraint or to turn it around into a strong customer benefit.
  5. Loop back to #2 as necessary
Going back to the example of the iPhone accounting software for dentists, you would:

  1. Start with all independent (non-payroll) professionals (22.5M in the US)
  2. The smartphone requirement cuts the market by ~50% but would be justified by the convenience and business impact of professionals having access to their accounting data anytime anywhere.
  3. For professionals without smartphones, you could consider the possibility of bundling a smartphone in your offer, or partnering with a cell carrier to include your software with a new smartphone subscription. You could also look at providing your accounting package in the Cloud to users with a PC.
  4. You should challenge the iPhone requirement. From your audience perspective, does the iPhone present a significant benefit over Android? Or is your product substantially appreciating in user value because it is exclusive to the iPhone? More than likely this limitation is product (development) driven, and you should consider adding relevant smartphone platforms to your realize the potential of your target audience.
  5. You would go through the same analysis for the decisions to target health care (vs other industries) and then dentists (vs other medical professionals). Those decisions cut your market down by 100 (there are 250,000 independent dentists in the US). Are you able to deliver something so compelling to these dentists that they value your product 100x more than other professionals? Or can you categorize many other professions as parallel markets that you would address after you’ve demonstrated success in your initial niche of dentists?
Having a well defined target market is an important criteria for business success. Aiming for too narrow a market is a recipe for disaster. By matching each limiting market factor with a valuable audience benefit, this approach will help you aim for high potential niches and avoid market dead-ends.

Visually build your Value Proposition with a Value Proposition Canvas

Building a good value proposition can be challenging. There are various models available for going about it, and I’ve used some over my years of experience in planning new products and businesses at Microsoft. I found that many are fine models to explain a value proposition, but are poor tools to build one from scratch.

I use a slightly modified version of the Value Proposition Canvas to coach value prop development. The original canvas was set up from Business Model Generation author Alex Osterwalder.

    • it is a customer-centric tool for matching customer pains and gains with product benefits (many value prop models tend to be product-centric and result in a “all-benefits” approach to value prop definition);
    • it is a visual tool that makes it straightforward to develop your value prop step-by-step.

The (Visual) Value Proposition Canvas


On the lef side of the canvas you will detail your audience or your customer side of the value proposition:

      • who is your customer are and what their overall intent is ((not in an abstract way but in the context of the business relationship you want to establish with them);
      • what jobs or tasks they will undertake in their role, what needs they will have to do so and what problems they encounter;
      • their gains or what will make them more successful, gets them to celebrate, that will they seek to get more of;
      • their pains or what will impede their success, keeps them up at night, that they will seek to get less of
      • The right side is all about you and your offer. This is where you will list:

        • what market you operate in, who your competitors, or alternatives your customer could substitute for your services if you did not exist;
        • the specific features and benefits that your product/offer delivers that tie directly to the Jobs/Tasks/Needs?problems of your audience;
        • the gains boosters, or ways in which your offer enables or increases the stated customer gains & successes;
        • the pain relievers, or ways in which your offer prevents or decreases the stated customer pains or failures
        • The middle area is where you make the connection between the pains and gains of your audience and the boosters and relievers of your offer to arrive at your value proposition.

Here is an example of a value proposition canvas filled out for Tesla Motors Model S (you may need to open the image in a new browser window to see the text in larger font):


Finding your Product Market Fit and Value Proposition

Have you achieved Product-Market Fit? Do you have your Value Proposition? And what is the difference anyway?

Value propositions and Product-market fit are related. You can’t have one if you don’t have the other.

Product-market-fit is a development milestone. In the Lean Startup approach, you reach that milestone when you’ve iterated through a build-measure-learn loop and have found the sweet spot for your product, when it responds clearly to the needs of your audience, the feedback you are getting is positive and your product adoption becomes much easier and starts to accelerate. In other words, you are no longer pushing a square peg in a round hole!

Value proposition is a fundamental building block of your business model, a foundational element for all your marketing, communication and sales tools. Value proposition is a statement:

  • of the benefits your customers get from your offer, and you differ from the competition
  • of why they should buy, from you
  • of how your customers are getting their ROI from your offering
Your Value Proposition is an internal-only “tool”. Companies do not communicate their Value Proposition statements. You use a value proposition to inform your marketing (messaging and positioning), advertising and sales efforts.

An example – the original iPod


Product-Market Fit: when Apple decided to enter the portable music player, they went through build-measure-learn loops to arrive at their final design. They tried models with different UI models and mechanisms.. They acquired and improved music management software to facilitate the transfer of music files from a Mac/PC to the device. They also looked at different models to buy new songs to add to the library and device. And at some point, the loop produced the product-market-fit equilibrium they launched with: a device based on a tiny hard drive, capable of storing 1,000 songs, managed with a scroll wheel interface, connecting to a Mac/PC music library managed by dedicated, simple to use, software (iTunes) with access to an online store for the purchase of individual songs at $0.99 in addition to whole albums.

Value Proposition: the original iPod value proposition would have been “Fit 1000 songs in your pocket, with a simple UI to manage your music on the device and your PC, and a store with millions of individual songs available for $0.99)”.

Some other great value propositions

  • Pizza Hut: “Fresh, hot pizza delivered to your door in 30 minutes or less, or it’s free”
  • Square: “Accept credit cards and increase your business revenue, without the hassle and expenses of dedicated equipment and fees, using your smartphone”
Having a great value proposition is must-have for your product or business success. They will prove to be an essential building block of any communication you will generate, and they help focus your efforts on the elements that will really matter and make a difference in your marketplace.

Five improvements the General Solicitation Act could bring to the Startup-VC ecosystem

I saw a few reactions like this one to the JOBS Act allowing public solicitation of funds (i.e. crowdfunding) for Startups.

Some in the VC community make the case that opening startup funding to the public will bring more negatives than positives:

  • entrepreneurs will lose the experienced guidance of VCs and their powerful networks;
  • professional VCs are better at finding startup winners (vs the general public);
  • public investors will be batting in the dark, taking unreasonable risks on doomed startups, and delaying the unavoidable demise of bad ideas.
There is some foundation to these concerns, but they sound like a reaction to disruption from a previously “sheltered” group, now seeing its business model exposed to wider competition.

Let’s face it, there are idiosyncrasies of the Startup-VC model that should be removed, and competition can be a formidable catalyst for change. Here are some inefficiencies and frustrations of the VC business model that would benefit from change:

  • Balance of power. VCs have the scare resource (money) and are in control of the relationship. You can have the best startup idea and intentions in the world, without funding you won’t go far. That power imbalance means vulnerability for Founders, at a time when they are highly vulnerable financially and emotionally. That can lead to terms negotiations that feel more like a hostage situation than an evenly balanced transaction. Some Founders have to compromise on their idea, or change the composition of their core team as a condition to getting VC funds. Yes, a VC can provide good advice, and risks to lose all of his investment in a startup. But that’s only a portion of his total available stack of chips. A founder is “all-in”, putting her savings, her time, her career, her reputation, possibly her house and her family life on the line.
  • Pressure to pitch. It can relieve some of the frustration that Founders experience from VCs lecturing them on the need to focus their product-market fit, yet also putting high pressure on the Founders to do pitches. Founders often complain that they just cannot do both, and (because of the power imbalance) will spend their time on pitches, at the expense of caring for their product or their team. A key reason behind the “pitch fever” is the success criteria for a VC being the ROI on his investment, ie. the need to generate a much higher valuation in the shortest possible amount of time. Moving through financing rounds pegs a new higher company valuation which builds up the VC ROI, and pumps resources into the startup to grow it further, which in term will lead to future higher valuation, etc. Access to a new funding channel could provide a breather to Founders that would have more time to focus internally on building the foundation of their startup.
  • VC time and location restrictions. For all the good they do, VCs can be an incredibly inefficient resource for startups. Why? Because personal time and geographic location are two of the biggest barriers to their interest and ability to invest and support startups. A VC only has 7 days in a week to work with startups. When their agenda fills up, they stop funding. As reiterated by Bill Gurley at Geekwire Summit, startups are concentrated in a few US regions because that is where the VCs live, and VCs do not want to spend what little time they have free at airports and in planes to advise their startups. That is an incredibly un-leveraged model. In our day and age of pervasive communication technology and Skype video calls, startups are still limited by factors that have not evolved since the origins of Venture Capital in 1946. A public funding platform could come with a longer and more flexible “umbilical cord” between startups and VCs that would help increase funding while reducing location barriers.
  • Opening up opportunities for unproven startup talent. Part of increasing VC ROI is lowering startup risk. An unknown/unproven Founder team carries a high degree of risk. VCs will typically privilege past founders which they know have played the game before and have successfully ramped up a company valuation to generate hefty returns to the investors. That investment strategy makes sense. But layer it with the time & location inefficiencies mentioned above, and you are in effect creating a very narrow funnel for startups to be successfully funded. A funding platform that allows risk to be spread across a wider number of (public) investors can be very valuable for “new” Founders that could not pass through the narrow VC funnel.
  • Diversifying the type of startups that get funded. To boost their ROI, VCs tend to favor hot market niches and business models that have shown success in the past. They optimize for a “ROI over time” criteria. Founders talk about a herd mentality, where the VC focus on similar types of investments at a given time. What you find on KickStarter and other product crowd funding platforms, is that the public investor uses a different criteria for choosing where to invest, with a stronger emphasis on the “perceived utility” of the startup idea (ie. how useful or cool the idea might be), rather than some “ROI over time” formula that a VC will be using. The Founders gain on two fronts – they can attempt to go after an idea and a business model that is different that what is the “startup du jour” in Silicon Valley. And they also gain “idea utility” validation from the public without the perceived bias of a VC for a specific business model or market niche.
If these new investment platforms can alleviate some of these problems, the startup ecosystem should fare better. And great VCs will continue to do well for all the reasons they already do week today – their expertise, their ability to recognize an idea and a team with potential, their extensive network that can accelerate the development of a startup. And also their ability to put a substantial amount of funds on the table in one shot.

A win-win for all!

Tim Cook should be losing sleep over lower priced iPhones if he cares about the iOS App ecosystem!

In this Bloomberg interview, Tim Cook explains (“I’m not going to lose sleep over that other market, because it’s just not who we are.”) how Apple’s phone strategy follows the traditional Apple “premium margin” strategy: focus on delighting the hog-end of the market with a superior product experience and cash in the fat margin that comes with it. Let your competition kill each other over the low-end, low-margin business where product differentiation is low.


That works well for an Apple that sells high priced products and generates $100s of margin with each sale. As happened in the PC market, by taking that stance, by 2005, Apple was able to siphon the vast majority of the PC industry profits while enjoying very modest market share. And today Apple is on top of the industry with all others struggling or bailing out. With the iPhone, Apple has a similar profit engine, a combination of volume growth, margins and attach of “pure profit” accessories. Apple enjoys  high upgrade rates within its current user base (people that already have an iPhone buying a new model), so even if it does not expand its total user base as fast, it can generate large volume through repeat buyers.

But the smartphone market is different than the PC market of 2005. With the browser dominating the app scene on PCs, Apple could afford to have a limited portfolio of software for Macs. It covered the bases with the likes of Officer and Photoshop. It lacked enterprise software, games, and many vertical apps. But it had enough to meet the average needs of the premium consumer.

The smartphone market exploded when the App market took off, morphing a (smart) phone into a pocket computer. App developers have a very different model than Apple. They make $0.7 per user for each $0.99 sale, if they make anything at all when they adapt a freemium model. The growth engine of the App developer is volume-volume-volume. And to get more App volume, you want more phone volume, which means going after the more price sensitive phone customers (for whom a $0.99 App or a fermium app can still be a decent bargain). And those repeat iPhone buyers Apple has? They do nothing for App developers when their Apps are simply transferred over to the new iPhone as part of the migration process.

In the volume game, Android already leads the pack and will further consolidate its lead in the coming years as the market moves to more price sensitive audiences (in the US and abroad). Today Apple enjoys 43% share in the US, close enough to Android’s fragmented 51% share. Add to the superior Xcode development environment and Apple remains the # platform most App developer target today. But move to a world where Apple share drops to <25% (as is projected by IDC for 2017) and things may change. Where will App developers focus to gain that volume they need then?

Sooner or later, Tim is going to need to spend a few sleepless nights…

Smartphone sales – just how big is that market?

At Geekwire Summit last week, Rich Barton of Zillow and Bill Gurley of Benchmark spoke about the enormous opportunity that Mobile is. One comment was the sales volume of Smartphone activations each quarter being the size of the internet circa 2000.


But just how big is the Smarphone market? Well…big…very big…by comparison the number of smartphones sold, every quarter, is now as big as all internet domains names, or an entire 5-7 years gaming console generation!

IDC expects WW smartphone sales to reach 1 Billion units in 2013 with a whopping 40% growth rate. That would place smartphone sales at 1.7 Billion in 5 years when smartphones are expected to be 95%+ of Mobile phone sales (from >55% of total today). Apple has ~17% of the WW smartphone sales, Android ~75%. In the US, Apple has ~43% share and Android ~51% share.

Quick back of the envelope calculations shows that WW smartphone unit sales are (rounded)…

250 million per quarter
80 million per month
20 million per week
3 million per day
100 thousand per hour
2 thousand per minute
33 every second

Let’s drill down on one quarter of smartphone sales being an incredible 250 million/qtr

– that is an entire console gaming generation (i.e.. 250 million consoles sold WW in 5-7 yrs), every quarter.

– it is more than a whole year of Desktop (134 million) or Laptop (181 million) PC sales! By 2015 (ie. tomorrow) each quarter the smartphone market will be as big as the whole yearly WW PC market! (IDC, Sep 2013)

– it is the entire internet registered domain names, world-wide!! (there were 246 million registered domain names end of 2012, growing ~12%/yr) (Verisign, Dec 2012)

– it is an entire Facebook circa July 2009 (remember how hot Facebook was then and how people blogged about its unstoppable global conquest?). On a yearly basis, smartphone sales equals (and will surpass) one entire Facebook.

Five things that put the console business at risk of falling like the PC market

A recent article by Horace Dediu of Asymco points to the demise of the fixed and portable console business with the advent of the smartphone, concluding that Gaming, as a business, cannot be sustained as a platform independent of a general purpose computer. As if to echo this opinion, Nintendo stock dropped 8% on Monday as it failed to re-enter the Nikkei index.

Mike Wehner posted on TUAW that Smartphones would have little effect on console gaming as we know it. His argument centers around low sales being part of the natural 5-7 year end of lifecycle of the current generation of game consoles, and that couch-based console gaming is a completely different game experience that that of playing Angry Birds on a smartphone.

Dediu may not have built the most decisive case to demonstrate his theory, but I believe he is more right than not, and people like Mike are not anticipating the full effects on the console business of the tidal wave of smartphone/tablet gaming.

The console business is at an inflection point that is similar to that of the PC industry a couple of years ago.In 2009 I gave Msft a thorough analysis of the impact of mobile and cloud on the productivity software market. I warned Msft that while Office would remain king of its hill, users (and competitors) were running around the hill, emboldened by the freedom and flexibility of the smartphone. The PC was on the verge of losing its prime position as best platform for productivity as users were being productive using different tools and processes through their Smartphone.

It seems unavoidable that consoles will have a similar fate – they will remain the best big tv-connected entertainment system. But Smartphones and tablets are running circles around consoles, capable of offering increasingly sophisticated games just about anywhere, including from the sofa in front of the big TV.

Here are 5 things that can contribute to console gaming’s disruption:

1) The rate of growth of the console installed base is too low to fend off mobile gaming

The current generation of consoles totals around 250 million units shipped (all manufacturers). The previous generation was at around 200 million. That is only a 25% total growth over a 7 year lifecycle, or about 3.5% growth per year. Contrast that 50 million console installed base growth to the growth of smartphone, that in the US alone grew from a base of 88 million to 170 million units between 2010 and 2012! Apple last week announced that they have shipped 700 million iOS devices in 6 years. Apple alone…add to that the hundreds of millions of Android devices, and you have a volume of mobile devices that is 10x that of consoles.

2) The tidal wave of smartphones is pushing down the share of couch gaming minutes on consoles

It is simple math, by having to share couch playtime with smartphones, the console see their share of playtime drop. And it is very likely that the volume of console playtime is also under pressure (ie. smartphone couch playtime cannibalizes console playtime). As we see in the PC world, when a technology loses user focus, purchase patterns follow, impacting growth, revenues and profits. Consoles will continue to sell, but growth is going to be very hard to sustain, and if total volumes decrease the console ecosystem will no provide enough oxygen for three contenders to survive and thrive. Some will have to exit or all will operate in very difficult financial conditions.

3) The console business model is obsolete

Recouping the investment on the console hardware by having to sell multiple $60 games purchases is obsolete in a world of smartphones sold at a profit (to carriers who pay the subsidy or to consumers full price unlocked) upfront and games available between $9.99 and $0.99, with a great many games using the freemium model. The smartphone gaming model puts the most pressure on the most sensitive part of the console business model – the necessity to sell multiple $60 games with each console to make money. Assuming that the major console game franchises (Call of Duty, Halo, Mario, etc) can sustain their enormous sales volumes at a $60 premium, over time, things get more and more iffy for less grandiose titles that can more easily be substituted by their equivalent on a tablet or smartphone, at a fraction of the cost. If the repeat purchase of premium priced games slows down, the whole console business model becomes unsustainable.

4) The console hardware engineering model is obsolete.

Console manufacturers lock their engineering specs for 5 to 7 years cycle, partly to keep the platform stable and facilitate game development but mostly to allow sufficient time to recoup the engineering and initial cogs subsidies. Smartphones and tablets get refreshed every year, for a substantial boost in graphics and processor (and other technologies) capabilities with each new generation. Consider that in the 6 years (~ 1 console cycle) since the launch of the original iPhone, Apple has boosted the iPhone CPU performance by 56x! All the while, the CPU of the Xbox 360 on sale today has the same processing capability as the one launched 8 years ago in 2005! This engineering cycle puts the console at a performance disadvantage, it also makes it much harder for consoles to offer new gaming experiences based on technologies made available after their market introduction.

5) The two principal value propositions of the dedicated game console are obsolete

As home PCs were becoming ubiquitous in the late 90s, the console maintained their position by providing two key benefits over PCs: simplicity and comfort of use. Playing a console game was a matter of turning the console on and plugging the game in. And the consoles were connected to TVs in front of sofas, providing a comfortable setting for gaming. By comparison, playing a PC game required using mouse and keyboards to navigate the Windows interface, manage graphic and audio drivers, all the while sitting at a desk in an office-like setting.
Smartphone and tablets have not only taken these two console advantages away, they’ve even made them better. Tablets and smartphones are essentially always-on, they do not require disks or cartridges to access games, they can be played in a sofa…or a bed, a car, a plane…essentially anywhere!

Disruption typically comes at the expense of an industry, but to the benefit of the end users. Clearly, couch gaming is doing very well. Kids and gamers continue to enjoy playing sitting in a sofa, solo or with friends, offline or online. What has changed is that consoles have to share that sofa time with smartphone and tablets that have proven to be very good entertainment platforms.

Microsoft swallows Nokia…an energy boost or an indigestion?

For a behemoth seemingly stuck in its Windows PC roots, Microsoft is sure moving a lot these last few weeks. The purchase of Nokia’s device unit is another big move for the company set on reinventing itself after years of sluggish growth. Here is my take on the purchase of Nokia:

What is good about it?

– Microsoft is taking action to be much more serious about Mobile. To date the company has seemed to be a reluctant follower in the Mobile space, continuing to privilege businesses closer to its Windows PC and traditional console empires. For Msft Mobile was a business unit, not a fundamental pillar. The July reorg memo from Steve Ballmer was alarmingly not enough mobile-focused (in my opinion). Now the pendulum may have shifted towards Mobile, with an enormous influx of Mobile product, talent and thinking coming from Nokia, as well as a full bench of management executives. Microsoft may become a Mobile company after all.

– Nokia gets to survive by getting direct access to the Msft cash reserves.

What’s so-so about it?

– it may be a purchase made out of defensive necessity rather than pure business value-add. Nokia is the Windows Phone champion for Msft. Nokia’s finances and low market share put it its business at risk, with Android being a possible market share solution for Nokia (as I have written about in a previous post). Obviously Msft could not see its main smartphone delivery engine go down in bankruptcy or secede to Android.

– the deal fundamentally does nothing in the short-term to improve Nokia’s smartphones low market share. The marketing challenges remain the same, there is no brand/design/technology/distribution/marketing synergy gained by the purchase (except the opportunity cost for Msft to have Nokia adopt Android). Time will tell how Nokia’s Mobile culture is able to permeate and refresh the development of the Redmond fortress.

– Msft recovers Elop, a contender for Ballmer’s CEO job. It is true that he never strayed too far from the mothership (given that Nokia and Msft were joined at the hip as soon as Elop became Nokia’s CEO) and was not truly successful in building market share for Nokia. But Elop was recognized for his business acumen at Msft, and now has the CEO experience of running a large global tech company, with more deep Mobile management experience than most internal CEO contenders.

What’s bad about it?

– 32,000 employees more. Wow. We must be talking massive redundancies in product development, marketing, sales, support, world-wide. Expect thousands of layoffs where the two businesses overlap.

– it makes it a difficult business proposition for other manufacturers to invest in Windows Phone. As seen with Surface, and reinforced by the July Ballmer Strategic reorg, Msft priorities are clear – to be the uncontested best possible provider of device-driven experiences. That will come first and foremost before the well-being of HW partners and their interest to license technology from Msft. Partners will still be welcome in the many areas where Msft is only the provider of the software piece of the user experience (traditional PCs, servers, etc).But iIn the critical areas of Smartphones and Tablets, Msft should focus on being number one at the expense of all others device manufacturers.

All in all, this deal may be more the result of defensive business necessity rather than a pro-active growth investment. And as such there are lots of unwanted complexities that will have to be resolved to free up the value-add potential of the acquisition.